One paradox of investing in emerging market debt is as follows: very often, those outside the asset class, when criticising it, fail to differentiate between sovereign and corporate borrowers. At the same time, those within the asset class probably don’t think sufficiently about the two investment themes together. Let me explain what I mean.

Firstly, when those who criticise emerging market debt aren’t sure which sort of borrower they’re talking about. In this instance, it’s fair to say that this is not a mistake that these otherwise well-informed people would make when talking about developed market fixed income! To these critics, all emerging market debt is the same. This is, at quite fundamental levels, not the case. Consider the following few facts: emerging market private sector debt as a percentage of GDP is over twice the level of emerging market general government debt as a percentage of GDP. Simultaneously, emerging market private sector debt is overwhelmingly made up of bank lending to corporates and households, as opposed to debt raised in the bond markets. And in both cases, emerging market government and private sector debt is overwhelmingly domestic.

All this puts a few holes in some of the usual shibboleths about emerging market debt. For example, that emerging market sovereign and corporate debt profiles are one and the same. Or, that emerging market corporates have made the entirety of their liabilities (dollar) bonds, owned by foreigners.

What about those inside the asset class? As the emerging market fixed income universe has grown greatly in scale in recent years, investors in the space have become increasingly isolated, as either specialists in one investment theme or the other. However, if you want to buy an Argentine corporate, for instance; you should be sure to have a firm view of what’s going on with the Argentine sovereign. Surprisingly often among emerging markets investors, this isn’t the case.

At Kames, we invest across emerging markets sovereigns and corporates, and aim to marry a clear-eyed view of the top down, with a firm understanding of the bottom-up. This holistic approach also involves tackling some of the widespread misunderstandings about emerging market fixed income as a whole.

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For Professional Investors only and not to be distributed to or relied upon by retail clients.

The opinions presented are those of Kames Capital fund managers as at the time of publishing and may change as subsequent conditions vary. They are not intended to be relied upon as a forecast, research or investment advice, and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Companies mentioned may not necessarily be held in any of Kames Capital funds. The information and opinions contained in these pieces are derived from proprietary and non proprietary sources deemed by Kames Capital to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. Reliance upon information in this material is at the sole discretion of the listener/viewer.

This site is not intended for use by any US persons (being residents of the United States of America or partnerships or corporations organised under the laws of the United States of America or any state, territory or possession thereof), who are excluded from the content in this site.

For Professional Investors only and not to be distributed to or relied upon by retail clients.

The opinions presented are those of Kames Capital fund managers as at the time of publishing and may change as subsequent conditions vary. They are not intended to be relied upon as a forecast, research or investment advice, and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Companies mentioned may not necessarily be held in any of Kames Capital funds. The information and opinions contained in these pieces are derived from proprietary and non proprietary sources deemed by Kames Capital to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. Reliance upon information in this material is at the sole discretion of the listener/viewer.

This site is not intended for use by any US persons (being residents of the United States of America or partnerships or corporations organised under the laws of the United States of America or any state, territory or possession thereof), who are excluded from the content in this site.